TAXATION

Notes1 Principles of Taxation

Nature, scope, classification, and essential characteristics

The policy of ‘’’taxation in the Philippines’’’ is governed 6. To promote science and invention, finance educational
chiefly by the Constitution of the Republic of the Philippines activities or maintain and improve the efficiency of local
under Article VI, Section 28 which states that, “the rule of police forces; and
taxation shall be uniform and equitable” and that “Congress 7. To implement police power and promote general
shall evolve a progressive system of taxation” welfare.

and three Republic Acts (RA): Meaning of Taxes

• National laws: Taxes - are enforced proportional contributions from

persons and property levied by the law making body of the
1. RA No. 8424 National Internal Revenue Code— state by virtue of its sovereignty for the support of the
enacted as or the ‘’Tax Reform Act of 1997’’ and government and all public needs.
was recently amended by –
2. RA No. 10963 or the ‘’Tax Reform for Taxes in a general sense, is any contribution imposed by the
Acceleration and Inclusion Act’ (TRAIN LAW); government upon individuals for the use and service of the
and, state, whether under the name of toll, tribute, impost, duty,
custom, excise, subsidy, aid, supply or other name. Tax, is
• local laws: its essential characteristics, is not a debt.

3. RA No. 7160 or the ‘’Local Government Code of Essential Characteristics of Tax (EM PP LPP)
1991’’ and those sourced from the proceeds
collected by virtue of a local ordinance. 1. It is an enforced contribution.
2. It is generally payable in money.
The major sources of revenue for the local 3. It is proportionate in character, usually based on the
government units (LGUs) are the taxes collected by ability to pay.
virtue of a local ordinance. 4. It is levied on persons and property within the
jurisdiction of the state.
Taxes imposed at the national level are collected by the
5. It is levied pursuant to legislative authority, the
Bureau of Internal Revenue (BIR), while those imposed at
power to tax can only be exercised by the law making
the local level are thru provincial, city, municipal, barangay,
body or congress.
collected by a local treasurer’s office.
6. It is levied for public purpose.
The Constitution of the Philippines is the supreme or 7. It is commonly required to be paid at regular intervals.
fundamental law of the Republic of the Philippines. It’s final
Tax distinguished from:
draft was completed by the Constitutional Commission on
October 12, 1986 and was ratified by a nationwide plebiscite a. Debt: A debt is based on a contract, is assignable
on February 2, 1097. and may be paid in kind while tax is based on law,
cannot generally be assigned and is generally
Meaning of Taxation
payable in money.
Taxation is the inherent power of the state, acting through
the legislature, to impose and collect revenues to support b. License fees: A license fee is a charge imposed
the government and its recognized objects. Simply stated, under the police power for purposes of regulation
taxation is the power of the State to collect revenues for while a tax is levied for revenue and involves the
public purpose. exercise of taxing power. Failure to pay license fee
makes an act or business illegal while failure to pay
Purpose of Taxation a tax does not necessarily make an act or business
illegal.
Primary Purpose - is to provide funds or property with which
the government discharges its appropriate functions for the
c. Special assessments: It is an enforced
protection and general welfare of its citizens.
proportional contribution from owners of lands for
Secondary Purpose - utilized as a tool to carry out the special benefits resulting from public improvements.
national objective of social and economic development. Special assessment is only levied on land while tax
is levied on persons, property or exercise of
1. To strengthen anemic enterprises by granting them tax privilege.
exemptions or other conditions or incentives for
growth; A tax is a financial charge or other levy imposed upon a
2. To protect local industries against foreign competition taxpayer (an individual or legal entity) by a state or the
by increasing local import taxes; functional equivalent of a state such that failure to pay, or
3. As a bargaining tool in trade negotiations with other evasion of or resistance to collection, is punishable by law.
accounts;
Taxes are also imposed by many administrative divisions.
4. To counter the effects of inflation or depression;
Taxes consist of direct or indirect taxes and may be paid in
5. To reduce inequalities in the distribution of wealth;
money or as its labor equivalent.

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TAXATION
Notes1 Principles of Taxation

Money provided by taxation has been used by states and The Property tax is the tax that is imposed on ones property;
their functional equivalents throughout history to carry out whether with is a real property or personal property in
many functions. Some of these include expenditures on proportion with the property’s value.
war, the enforcement of law and public order, protection of
property, economic infrastructure (roads, legal tender, The Excise Tax is a tax that is imposed upon the
enforcement of contracts, etc.), public works, social performance of an act as well as the enjoyment of a privilege
engineering, subsidies and the operation of government or the engaging in a particular occupation.
itself. According to who bears the burden, taxes are either
Nature of taxation direct or indirect.

The power to tax is an attribute of sovereignty, exercised by The direct tax is the tax that is directly demanded from and
the government for the betterment of the people within its paid by the taxpayers.
jurisdiction whose interest should be served, enhanced and The Indirect tax is the tax that is demanded from a certain
protected. (69 SCRA 460) person in the intention as well as expectation that the
The nature and scope of business taxation spreads across particular person shall indemnify himself at the expense of
all the business sectors. Taxation in business is imposed so another.
as business owners can get the privilege of doing business. According to the determination of the amount, taxes
The purpose of taxation in general is for the government are further classified to specific and Ad valorem.
to raise money. The Specific Tax is the tax that is of fixed amount that is
The main purpose of our government in imposing taxes is imposed by the head or number, or by some of the standard
to raise fund based on the lifeblood doctrine. of the weight and measurement

Taxation is a way of raising income in order to defray the The Ad valorem Tax is the Tax that is of fixed proportion in
necessary expenses of the government. It is the inherent relation with the value of the property in respect to which
power of the state to demand contribution to finance all the the tax is assed.
government expenses. According to the purpose, taxes are further classified as
It is an inherent power of sovereignty, essentially a General, Fiscal or revenue and Special of regulatory.
legislative function, enforced for public purpose, operates The General, Fiscal or revenue tax is the tax that is intended
only within its territorial jurisdiction, exempts government for the general purposes or expenses of the government.
agencies from tax (provided such agency performs
governmental functions), and is subject to constitutional The Special or regulatory tax is the tax that is intended for
and inherent limitations. a specific purpose.

Scope of taxation According to the Scope, the taxes are classified to either
National or municipal or Local.
In the absence of limitations provided by the constitution,
the power to tax is essentially unlimited, plenary, In the National scope, the taxes are imposed by the National
comprehensive, far reaching, and supreme. Taxation Government itself while in the municipal or local, the taxes
encompasses every trade or occupation, every object or are imposed by the Local government.
industry or possession of property. It levies a burden which,
in case of failure to discharge, seizure or confiscation of According to the graduation or rate, taxes are further
property may be enforced, subject to due process of law. classified into Proportional, Progressive or Graduated and
Regressive.
The nature and scope of business taxation spreads
across all the business sectors. Taxation in business is The Proportional tax is the tax that is based upon the fixed
imposed so as business owners can get the privilege of percentage vis-à-vis the amount of the property or other
doing business. bases on which to be taxed.

Classification of Taxes The Progressive or Graduated tax is the tax rate increase
upon the increase of the base rate.
Taxes are classified according to the object, to the bearers
of burden, to the determination of amount, to the purpose, The Regressive tax is the tax rate decrease upon the
to the scope and to the graduation of rate. increase of the base rate.

According to the subject matter or object, taxes are Tolls: A toll is a sum of money generally applied for the
either Personal, Poll or Capitation, Property and Excise. use of a road, bridge and the like of public nature. While it
is imposed by government or private individuals, tax is a
The Personal, Poll or Capitation tax is the fixed amount that demand of sovereignty.
is imposed to a person that is residing within a specific
territory. This is regardless to their property, occupation or Custom duties: Custom duties are taxes imposed on
business. goods exported from or imported to a country. Taxes on
the other hand cover a broader scope.

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Notes1 Principles of Taxation

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